War in the Middle East cools polymer trade in the Americas, fuels expectations of rising prices

The war with Iran paralyzed polymer transactions from Asia and Middle East to the Americas on March 2, with offers of polyethylene, polypropylene, and polyvinyl chloride heard to be suspended, while transactions between the US and Latin America have also cooled amid a "wait and see" sentiment.

In other chemical markets such as styrene, methanol, and tertiary butyl methyl ether, market participants are analyzing possible changes in trade flows while expecting prices to rise.

Polymers in Latin America

For PE and PP to Latin America, whose main suppliers are from Asia, one of the main concerns for market participants is freight costs.

On the West Coast of South America, these markets ground to a halt as the escalating Middle East conflict prompted suppliers to withdraw offers and buyers to hold purchases. A trader said that "the main impact is not from Iran, but from them blocking the Strait of Hormuz."

In the Mercosur PE and PP markets, several sources said negotiations with suppliers to set initial March offers would begin amid strong expectations of increases of up to $100/mt compared to early-February levels. However, a converter in Argentina said that "it is very likely, with all the stuff happening in the Middle East, [that the offer announcement] will get delayed a couple of days."

In Brazil, four traders said that all offers from Egypt, Saudi Arabia, Vietnam, and China were halted. "Everything is suspended until they assess what will happen with logistics and pricing," one of them said.

In the Brazilian PVC market, one of the main points of attention was supply from Egypt, the country's second-largest supplier. Offers from other suppliers, such as Taiwan and South Korea, were also suspended, according to sources.

Platts, part of S&P Global Energy, last assessed the Brazil import spot PVC price at $805/mt CFR on Feb. 25.

Pressure on local prices in Latin America

Market participants said that heightened uncertainty in the Middle East has emboldened some local polymer producers to increase prices, especially in the polypropylene market.

In WCSA, a producer said that the price "will definitely rise, but the discussion will be about how much."

A second polymer producer in the same region said that the transit routes from Arabia and Egypt may lead to unexpected changes in market demand in countries such as Brazil, Peru, and Colombia.

In Brazil, Braskem announced on March 2 an increase of Real 500/mt for PE and Real 250/mt for PP. Market participants reported that buyers accepted the increase.

A distributor mentioned the war in the Middle East as one of the factors driving up local prices. "I believe there was a movement to reduce inventories by clients; in this war scenario, they are vulnerable and without many options for replenishment in the external market," the source said.

US-Latin America trade cools

On the US PE market, buyers were waiting for fresh offers while questioning how much the price would be impacted.

"I am sure Asian PE prices will move up," a second distributor said, mentioning feedstock and shipping costs. "This will also impact PE prices. To what extent remains to be seen."

Platts last assessed HDPE blowmolding and injection down $10/metric ton from Feb. 18 at $838/mt and $871/mt FAS Houston, respectively.

On the PP side, US exporters believe the war could create an arbitrage opportunity, as shipping cancellations and freight rate increases could make their exports more competitive. This would change the market scenario, given that global PP exports are largely dominated by Asia and the Middle East.

"All US majors have pulled back from announcing offers for March in the wake of the Middle East conflict. It will be very interesting to see the impact of this conflict on Asian prices," a US PP trader said. "If it climbs by $200-300/mt, then we could see arbitrage opening up for US PP."

Uncertainties in other markets

In other markets, US Gulf Coast MTBE prices rose as upward pressures from surging crude prices weighed on the market. However, spot liquidity in the region remained quiet, as participants were more observant than active. "I guess everyone is on watch and see mode," an MTBE trader said.

Platts assessed US Gulf Coast spot MTBE at 219.11 cents/gal FOB USG March 2, up 8.51 cents day over day.

In the methanol market, while America's spot prices did not immediately rise in the aftermath of the war escalation, the impact is expected to be "significant," according to a producer, who estimated that Iranian, Saudi Arabian, and Qatari methanol capacity accounts for 20% of global output.

In addition to damaged plants, the war could also impact the availability of gas feedstock, increase freight risk premiums, and reroute ships at sea to backfill in other regions, the same producer said.

High gas prices in Europe, along with reduced Middle East imports, are expected to make for bullishness in the Atlantic Basin, incentivizing high run rates among producers in the Americas, the same producer said.

On the US styrene market, a distributor mentioned the expectation of price spikes "amid limited global supply concerns and volatile energy complex."

"There isn't much spot upside to tap into via the USGC, and the de facto closure of the Strait of Hormuz, coupled with surging freight out of that region, will limit exports from the Middle East into Europe. As a result, I think values could exceed the geopolitical premiums we currently see," the same styrene distributor said.